NORWAY has the largest sovereign wealth fund (SWF) in the world, with total assets of US$1,6 trillion as at July 2024.
It is financed by the state’s share of oil and gas revenues and is managed by the Norges Bank Investment Management (NBIM), a subsidiary of Norway’s Central Bank and its Ministry of Finance.
The Fund has one of the most sophisticated investment strategies and most transparent institutional set-ups among its peers. The Norwegian Parliament established the regulatory framework under the Government Pension Fund Act.
The Ministry of Finance acts as the Fund’s owner and is responsible for overall fund management, while the Norwegian Central Bank (Norges Bank) is responsible for operational management through its asset management unit, Norges Bank Investment Management (NBIM).
The Finance Ministry laid out fund management guidelines in a separate mandate that describes the general investment framework and stipulates requirements for risk management, reporting, and responsible management.
While the central nbank makes investment decisions independently of the Finance Ministry, the bank’s executive board is subject to supervision from the Parliament-appointed Supervisory Council, which also appoints the central bank’s auditor.
The internal supervisory function at NBIM is carried out by the Compliance and Control Unit, which has the authority to report independently to the executive board. The bank must provide the ministry with quarterly fund management reports within set minimum requirements, and the ministry reports annually to Parliament.
The Fund came first on the list of the most transparent funds in the 2023 Global Pension Transparency Benchmark. The Global Pension Transparency Benchmark (GPTB) measures whether funds are clearly disclosing how they generate value for stakeholders.
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The Mutapa Investment Fund is a special fund set up by Zimbabwe. It was initially established under the Sovereign Wealth Fund Act (Chapter 22:20) and was renamed the Mutapa Investment Fund through Statutory Instrument 156 of 2023.
Ownership of the fund is vested in the Republic of Zimbabwe with the President of Zimbabwe acting as the trustee thereof. In terms of accountability, the fund shall no later than 60 days after the end of each financial year submit to the president and the minister an annual report on its operations and activities during the preceding financial year.
In the neoclassical economic growth model, savings is regarded as the main source of capital accumulation and, therefore, a key driver of long-term growth. However, most countries in Africa including Zimbabwe, have struggled over the years to mobilise sufficient domestic resources to promote and sustain economic growth and development.
The country has a huge shortfall in terms of both savings and investments. A high rate of domestic savings provides the necessary resources needed for capital accumulation, sustained economic growth, and the attainment of the Sustainable Development Goals.
The Mutapa Investment Fund can, therefore, help to mobilise savings for capital accumulation.
Management is a critical issue in the sovereign wealth fund. The management of the fund must be highly ethical and competent. With large pools of capital to invest and account for, mismanagement may be devastating to accumulated funds. Any government fund is at risk of political interference, as well as the temptation to withdraw from the fund during tougher economic times — both of which jeopardise the health and sustainability of the SWF.
This is why disclosure, transparency, and clarity of ownership and oversight are important. Withdrawals and transfers must minimise political risk.
For many funds, this kind of action requires an act of parliament or state legislature; for others, it requires review from the Fund’s board and management.
It will be critically important to define the relationship between the government agencies and the fund’s managers and to outline their roles, responsibilities, oversight, and accountability.
Effective governance must be anchored on a delegation of duties and systems for control and supervision. The board and the oversight it provides are integral components of every SWF structure.
While it may be impossible to remove government involvement entirely, there are ways to minimise the risk through an independent and professional board.
Research shows that political influence in board activities and management can worsen financial performance.
Sovereign wealth funds are not typically put into place in countries operating with huge public debts. Zimbabwe has a total public debt of about US$21 billion as at June 2024.
The country also has a well-documented history of endemic corruption and financial mismanagement especially of State-owned enterprises. There is therefore the risk of mismanagement or corruption which could lead to losses or misuse of the Fund.
Weak institutions, political instability and a lack of transparency and accountability can turn SWFs into nuclei of corruption and financial abuse.
Anders Aslund (in The Truth About Sovereign Wealth Funds, Foreign Policy, 3 December 2007), claims that SWFs are typically established by — semi-authoritarian governments in — semi-developed countries essentially to fleece their own citizens.
The Fund will be able to move foreign currency “without restriction or delay”, i.e., without being subject to exchange control regulations. This is not unusual for sovereign wealth funds; they are free to move foreign currency in and out of the country for uses such as capital investment, profits from investments, paying suppliers or loans, or even paying foreign staff.
Zimbabwe has in the past been listed among countries with a high risk of money laundering. This has raised risk that the Fund could be used as a channel and tool for money laundering.
For instance, a news report from Reuters published on December 17 2019 highlighted that US$3 billion had been stolen from Angola’s sovereign wealth fund, Fundo Soberano de Angola, through corruption and money-laundering.
The Mutapa Investment Fund will not be subject to the Public Procurement and Disposal of Public Assets Act (PPDPA). This exempts the Fund from procurement procedures and regulations in the buying and selling of assets but it also removes any need for transparency in making such transactions.
The argument by the government is that the fund will have to operate in highly competitive international markets against private equity funds and similar businesses and hence it will need to be quick, efficient and cost-effective.
One of the most important lessons learned from the global experiences is ensuring the separation of the government as the owner from the management of its investments.
Emphasizing this boundary, the Santiago Principles recommend that SWFs should be accountable to governments but independent from them.
It is important to create a governance structure with a clear delegation of duties, operational accountability, and disclosure policies based on the Santiago Principles to ensure effective communication, control, and supervision of the Fund.
It is also important to utilise investment professionals and independent experts to manage and oversee the Fund for enhanced financial expertise and political neutrality.
Political objectives and considerations should not influence investment decisions.
Ordinary citizens and civil society organisations can participate either directly or indirectly in enforcing transparency and accountability of the fund through monitoring.
Citizen monitoring reduces the propensity of corruption and increases overall citizen engagement. Some of the specific actions and strategies that citizens can take to hold the State to account include social mobilisation, public hearings, social audits and legal action.
Social audits are participatory processes through which citizens monitor the implementation of government programs in their community. Citizens should collaborate with legislators, sympathetic officials, the Auditor General and CSOs access information on the Fund.
Parliament should establish the legislative and regulatory framework governing the Fund. Wealth fund managers should be accountable to the legislature. The Ministry of Finance should also report to Parliament on all important matters relating to the Fund. In Ghana, parliament is responsible for producing the initial legislation that governs the behaviour of the Fund.
It is supported in this by civil society groups, to whom it is accountable.
In other countries, extensive audits and financial reports are undertaken on a quarterly basis and any discrepancies are investigated by parliament.
- Chitambara is a Harare-based scholar and economist. These weekly New Perspectives articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Pvt) Ltd, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe. — [email protected] or +263 772 382 852.
